Financial Management in the Department for Children, Schools and Families

Transcription

1 Financial Management in the Department for Children, Schools and Families REPORT BY THE COMPTROLLER AND AUDITOR GENERAL HC 267 Session April 2009

2 The National Audit Office scrutinises public spending on behalf of Parliament. The Comptroller and Auditor General, Tim Burr, is an Officer of the House of Commons. He is the head of the National Audit Office which employs some 850 staff. He and the National Audit Office are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources. Our work leads to savings and other efficiency gains worth many millions of pounds; at least 9 for every 1 spent running the Office.

3 Design and Production by NAO Marketing & Communications Team DP Ref: This report has been printed on Consort Royal Silk and is produced from a combination of ECF (Elemental Chlorine Free) and TCF (Totally Chlorine Free) wood pulp that is fully recyclable and sourced from carefully managed and renewed commercial forests. The range is manufactured within a mill which is registered under the BS EN ISO 9001 accreditation, which provides the highest standard of quality assurance.

4 Financial Management in the Department for Children, Schools and Families LONDON: The Stationery Office Ordered by the House of Commons to be printed on 28 April 2009 REPORT BY THE COMPTROLLER AND AUDITOR GENERAL HC 267 Session April 2009

5 This report has been prepared under Section 6 of the National Audit Act 1983 for presentation to the House of Commons in accordance with Section 9 of the Act. Tim Burr Comptroller and Auditor General National Audit Office 22 April 2009 The National Audit Office study team consisted of: Steve Young, Andy Whittingham, Stephen Kingston, Peter Jones, Adam Machin and Jonathan Jones, under the direction of D S Sidhu This report can be found on the National Audit Office web site at For further information about the National Audit Office please contact: National Audit Office Press Office Buckingham Palace Road Victoria London SW1W 9SP Tel: enquiries@nao.gsi.gov.uk National Audit Office 2009

6 contents summary 4 Part ONE Organisation and accountability 11 Part TWO Financial performance 15 Part THREE Financial management 25 Appendices 1 Methodology 36 2 Comparison of school revenue balances 37 with performance Glossary 42 Photograph courtesy of Alamy.com

7 SuMMARy Introduction 1 Financial management is the system by which the resources of an organisation s business are directed and controlled to support the organisation s goals. Good financial management is an essential element of strong corporate governance. It forms part of the foundations of an organisation, underpinning service quality and improvement, and is the basis of accountability to stakeholders for the stewardship and use of resources. Effective financial management helps an organisation: manage its budgets; allocate resources and make decisions supported by an understanding of the relationship between costs and performance; and deliver its services cost-effectively. 2 The Department for Children, Schools and Families (the Department) has the responsibility in England for education and services for young people up to the age of 19. The Department has six strategic objectives over the 2007 Comprehensive Spending Review period up to , which link to the five Every Child Matters green paper outcomes and to 17 Public Service Agreements, for five of which the Department has the lead responsibility (Figure 1). The strategic objectives and Every Child Matters outcomes are set out in the Children s Plan, published in December 2007, which includes aims to improve services for young people up to The Department reported progress against the Public Service Agreements in its Autumn Performance Report published in December FINANCIAL MANAGEMENT IN THE DEPARTMENT FOR CHILDREN, SCHOOLS AND FAMILIES

8 summary 1 Relationship between Departmental Strategic Objectives, Public Service Agreements and Every Child Matters outcomes departmental Strategic Objectives 1 Secure the wellbeing and health of children and young people 2 Safeguard the young and vulnerable 3 Achieve world class standards in education 4 Close the gap in educational achievement for children from disadvantaged backgrounds 5 Ensure young people are participating and achieving their potential to 18 and beyond 6 Keep children and young people on the path to success Public Service Agreements 12 Improve the health and wellbeing of children and young people 13 Improve children and young people s safety 10 Raise the educational achievement of all children and young people 11 Narrow the gap in educational achievement between children from low income and disadvantaged backgrounds and their peers 14 Increase the number of children and young people on the path to success Every child Matters outcomes Be Healthy Stay Safe Enjoy and Achieve Economic Well-being Positive contribution Source: Department for Children, Schools and Families NOTE Every Child Matters was the green paper published by the Government in response to the Climbié review. Following the consultation, Parliament passed the Children Act 2004, providing the legislative background for developing more effective and accessible services focused around the needs of children, young people and families. The five outcomes were identified in the green paper as those that are most important to children and young people. The Department also contributes towards the following Public Service Agreements with Senior Responsible Officers in other departments: PSA 1 uk productivity PSA 4 Science and innovation PSA 8 Employment PSA 9 Child poverty PSA 15 Equal opportunities PSA 16 Adult social exclusion PSA 17 Tackling poverty PSA 20 Housing PSA 22 Olympics and sport PSA 23 Safer communities PSA 25 - Alcohol and drugs PSA 27 Climate change 3 The Department develops policies in response to national priorities determined by Government, such as the five Every Child Matters outcomes. The Department s financial management flexibility is set within a devolved delivery model and its budget is distributed to its delivery partners (schools, colleges, children s centres, local authorities, non-departmental public bodies and other bodies delivering services on behalf of the Department), which implement the policies. Funding to local authorities and other partners is fixed to a great extent over the period of the Comprehensive Spending Review. Some funding routes are indirect. For example, funding for sixth forms goes through the Department for Innovation, Universities and Skills, and the Learning and Skills Council, before reaching schools and sixth-form colleges. The Department influences its partners through a combination of grant distributions, regulation and agreements on priorities and performance targets. For from the Department s total net expenditure of 59.5 billion (which includes 10.7 billion relating to the funding of teachers pensions which is excluded from the scope of this report), local authorities received 38.3 billion, of which 35.6 billion was allocated to schools. Children s Centres received 1.5 billion, Academies received 0.9 billion and executive non-departmental public bodies received 8.2 billion. Financial Management in the department for children, schools and families 5

9 summary 4 The Department faces many challenges in managing its financial resources. For example, the complexity of service delivery across the sector it has responsibility for; the changing needs of its customers and demand for its services; and changing priorities in response to national developments. Such challenges emphasise the need for good financial management to make best use of the available resources. The Department and the sector are facing pressures and constraints as a result of the economic downturn. For example, the Department is being asked in response to the downturn to accelerate its capital programme by bringing forward 924 million of capital expenditure from to to support the Government s fiscal stimulus, despite a slowdown in the availability of credit for Private Finance Initiative schemes in its Building Schools for the Future programme, which represents some 40 per cent of the overall programme. 5 This report presents the findings and recommendations from our examination of financial management within the Department for Children, Schools and Families and across the sector. The Department was created from its predecessor department, the Department for Education and Skills, on 28 June Some functions of the Department for Education and Skills passed to the Department for Innovation, Universities and Skills. Part 1 of this report sets out how the Department is organised and how accountability arrangements operate across the sector. Part 2 describes the financial setting within which the Department operates and the financial performance of the sector. Part 3 presents our detailed assessment of financial management within the Department and the sector it has responsibility for, against the widely accepted five aspects of good financial management. Findings 6 The Department has made progress on integrating financial planning with its strategic and corporate planning. The Department has produced a business plan linking budgets to Departmental Strategic Objectives for and the subsequent two years of the Comprehensive Spending Review 2007 period. The Department s financial planning has the major elements needed to support the business when the Children s Plan, business plan, capital plans and asset management strategy are taken together. 7 The Department reports expenditure, other than the Dedicated Schools Grant, against its Strategic Objectives as a year end exercise for the Department s Resource Accounts, but such reporting does not form part of the Department s ongoing financial management during the year. Delivering mainly through partners makes it difficult for the Department to report and manage expenditure during the year against its strategic objectives or other outcome indicators. Requiring front-line providers such as schools to provide meaningful information would be burdensome and would not be practical as most costs relate to the salaries of teachers and support staff that cut across objectives. The Department therefore needs a straightforward system to gain a better understanding of costs against its Strategic Objectives during the year. A pragmatic solution would require certain entities, such as other Government departments and non-departmental public bodies that directly receive funding from the Department to provide in-year information on expenditure against its Strategic Objectives. The situation is more challenging and complicated with respect to local authorities where the Department will need to consult further to find a workable solution. Without such a system the Department is unable to cost its objectives, monitor against these costs, and identify the impact on outcomes of changes in the allocation of resources, which would inform decision making and allow it to practise better financial management. Any solution needs to be devised collaboratively to ensure that it provides the appropriate level of information without imposing undue burdens on the delivery partners. The Department needs relevant and accurate financial and performance information from delivery partners on a timely basis to make difficult strategic decisions on priorities and emerging needs. 8 The Department has less influence over the financial management of its delivery partners because of partners accountabilities. Although the Department has overall accountability to Parliament for the resources it has been voted, many front-line providers of services are not accountable to Parliament. For example, schools are accountable to local authorities which are in turn accountable to their electorate. Nevertheless, the Department is able to exert influence over financial management of schools and other local authority services, for example, through the Financial Management Standard in Schools and through its regulatory and inspectorial functions. Academies are accountable to the Department through their Funding Agreements, but there is currently no reporting of the financial performance of the Academies sector to Parliament. 6 Financial Management in the department for children, schools and families

10 summary 9 The Department s corporate governance structure lacked sufficient non-executive challenge at Board sub-committee level to address fully the financial management issues it faces. The corporate governance structure usefully encourages the Departmental Board to focus on strategy and performance. External challenge is provided by two non-executive Directors on the Board and independent members of other committees. The Department introduced a new structure of sub-committees supporting the Board including a separate Finance Strategy Board with one member being a non executive director from the start of the financial year. Previously, the Executive Management Board, which had no non executive input, managed the departmental resources and advised on the allocation of financial and human resources. 10 Two recent high profile examples of risks materialising at delivery partners suggest the need for the Department to require partners to improve the way in which relevant risks are reported. The risks (which related to national tests and the payment of Education Maintenance Allowances) have had reputational and financial consequences, and one of these incidents was not properly escalated to the Department. The Department has strengthened its risk management arrangements with its partners so that it is made aware of potential issues at the earliest opportunity by introducing a new Delivery and Risk Assurance Board with the specific remit to oversee major delivery initiatives through its area of influence. 11 The quality of financial information in policy submissions is not consistent across the Department. Procedures are in place to ensure that policy proposals contain consideration of financial implications. Our analysis of all policy submissions that the Department could locate made in the six months between November 2007 and April 2008 found that around 10 per cent either did not have an assessment of financial implications, or had an assessment that was insufficiently detailed. Findings from two recent National Audit Office Value for Money studies 1 on the Building Schools for the Future and education reform programmes also found that assumptions made by the Department on which financial modelling and forecasting are based are not always robust, necessitating changes to funding after the start of the programmes. 12 Financial management systems are being further enhanced to improve monitoring and forecasting. Although the vast majority of the Department s expenditure is funding allocated to delivery partners fixed over the period of the Comprehensive Spending Review, which is relatively easy to forecast, there have been problems with the accuracy of forecasting of other types of expenditure. Reporting timetables for directorates and non-departmental public bodies do not align with the Board reporting timetable. In the Department lost the ability to access 122 million of budget carried forward from previous years which had been drawn down but was not in the event required. In 2007 the Department was one of three which had not implemented monthly accruals based accounting and budgeting systems 2, and information on accruals and forecast expenditure currently has to be collected manually from directorates. Accruals accounting allows departments to understand better their consumption of resources, and should help improve the accuracy of forecasting. The Department implemented a new system to identify accruals over 100,000 on a monthly basis during , and intends that the system will be fully implemented for the start of the financial year. The Department has started a training programme to support the introduction of full accruals accounting, with over 180 staff trained since August The Department is moving to a shared service arrangement with the Department for Work and Pensions for finance, procurement and personnel support, which is currently experiencing some delay. There are also some consequences for several of its non-departmental public bodies. The Department is engaging with the Department for Work and Pensions to take advantage of its shared service infrastructure and capabilities to deliver a fully integrated financial, planning, budgeting and reporting system which aims to improve support services and lead to efficiencies. The programme received an Office for Government Commerce Gateway Review red rating in June 2008 and is at high risk. The roll-out of the shared service was put back to autumn 2009 because of changes to the Cabinet Office plans. The Cabinet Office is also moving to a shared service arrangement with the Department for Work and Pensions and is scheduled to precede the Department. When the Cabinet Office implementation was put back, the Department delayed its plans. Going live in April 2009, the date originally 1 NAO Reports. The Building Schools for the Future programme: Renewing the secondary school estate (HC 135, ), and Partnering for success: Preparing to deliver the education reforms in England (HC 99, ). 2 NAO Report. Managing financial resources to deliver better public services (HC 240, ). Financial Management in the department for children, schools and families 7

11 summary planned for the Department for Children, Schools and Families, would put operational pressure on the Department for Work and Pensions and increase the likelihood of service problems, but the delay has reduced the business benefits to the Department. Because the service is not cost effective for smaller organisations, the Department is withdrawing payroll and human resources support to several of its non-departmental public bodies. This step was taken after discussion with the affected bodies which are now in the process of making separate arrangements that will involve some extra costs. 14 The Department had built up a large capital underspend of around 2.4 billion by 31 March 2009, and has an extensive long-term capital expenditure plan that will need to be carefully managed in the current economic climate. The Department has built up a large capital balance carried forward each year, primarily due to over-optimistic assumptions on the rate of progress made in the early stages of the Building Schools for the Future programme. In the balance increased by 654 million to 1.9 billion and rose to around 2.4 billion by 31 March The Department will need to ensure that its long-term capital expenditure plans remain realistic given the difficulties private sector partners may find in securing funding in the current economic climate. To address some of these difficulties, the Treasury announced in March 2009 that the Government would lend funding to Private Finance Initiative projects where this funding cannot be raised from the private sector, funded from unallocated funds and departmental underspending. 15 The national total of school revenue balances stood at a net surplus of 1.9 billion as at 31 March 2008 and has almost tripled over the last nine years. Despite efforts to encourage the reduction of excessive surpluses, the Department announced in February 2009 that the total balance at 31 March 2008 had increased by 250 million from the previous year. The total balance is almost six per cent of total revenue funding for schools and is deemed too high by the Department, which defines an excessive surplus as being greater than five per cent of annual budget for secondary schools and greater than eight per cent for nursery, primary and special schools. The allocation of Dedicated Schools Grant does not currently take into account the cumulative net surplus position of school revenue balances in each local authority. The Department wrote to local authorities in November 2007 asking them to work with schools to reduce excessive balances and make use of available claw back mechanisms. Additionally, the Department has introduced an annual one per cent efficiency saving into the Dedicated Schools Grant over the period to , which the Department expects will lead schools to utilise some of their cumulative surpluses from onwards. The efficiency saving equates to around 1 billion over the three-year period. Only one in five local authorities have been successful in reducing their total net school surplus in , with the overall balance having increased by around 15 per cent. 16 Ofsted performance ratings of schools with excessive cumulative surpluses are similar to schools with small surpluses, whilst a correlation exists between schools with cumulative deficits and lower performance ratings. At the end of the financial year, around 20,500 of England s schools had revenue balances that were in surplus and around 1,700 schools had balances that were in deficit. Schools should not be aiming for a zero revenue balance but to retain a small surplus from year to year as a part of sound financial management. In secondary schools with excessive cumulative surpluses were found to be similar in performance to schools with small cumulative surpluses, suggesting excessive cumulative surpluses could be reduced without impacting on performance. However, a significantly greater proportion of schools with cumulative deficits obtained an inadequate Ofsted rating. Schools with cumulative deficits agree recovery plans with their local authority to eliminate the deficit, normally over three years. 17 The Department has plans for securing improvements in the financial management capability of the Department, but there is still some way to go. The proportion of professionally qualified finance staff within the Department as a percentage of total finance staff has been significantly lower than the average across public sector organisations. As part of its corporate services transformation programme, the Department has reviewed its central finance function and a recruitment exercise is in train to significantly increase the number of qualified accounting staff in central finance. Also, over the last 12 months the Department has recruited a qualified finance professional to each of the three policy directorates at Deputy Director (Grade 5) level, and all three posts will be filled by May Financial Management in the department for children, schools and families

12 summary Conclusion on Financial Management 18 The Department meets many of the requirements of sound financial management and has demonstrated its commitment to further progress through its investment in new information technology systems, improved business processes and an upskilling of its finance workforce within its central finance function and throughout its policy directorates. There remain, however, aspects of its financial capability and its ability to influence financial management in organisations on which it depends to deliver services which, as yet, do not meet accepted good practice. In particular, financial and costing information is not easily related to the Department s strategic objectives. This information is needed for decisions on spending priorities and emerging needs, and to assess the financial implications of new policies. Risk management is not sufficiently developed so that emerging risks in partner organisations are escalated early enough for remedial action to be taken. The strategic management of its large capital programme has not been responsive enough to avoid large underspends, and it has not been successful in encouraging local authorities to persuade schools to avoid retaining excessive surpluses from year to year. The following recommendations are intended to improve the management of finances across the sector the Department oversees. Recommendations 19 Responding to unforeseen events such as the need to find savings to fund the requirements of the Children s Plan currently requires a major exercise to identify savings within each Directorate, as budgets are not routinely prioritised during the planning process making it difficult to redirect resources at short notice. The Department has used the business planning process to identify the scope for prioritisation of budgets. The Department should identify where it has flexibility over areas of expenditure. It should routinely prioritise budgets during the planning process to enable decisions to be made quickly on where programmes can be scaled back, delayed or abandoned to release budgets for emerging priorities. 20 Although the majority of the Department s expenditure is funding allocated to delivery partners fixed over the period of the Comprehensive Spending Review, and is therefore relatively straightforward to forecast, forecasting of more volatile budgets is less accurate and has led to problems such as the loss of resources relating to underspends carried forward under End-Year Flexibility arrangements. The planned introduction of the shared service arrangement with the Department for Work and Pensions aims to align reporting from directorates, to support up to date forecast information and explanations in the Board finance report. The reporting timeframes for delivery partners should also be aligned with the timeframe for reporting to the Board, so that the latest forecasts in these areas are available for inclusion in the Board report. To improve forecasting, particularly of more volatile budgets, financial management should be assessed explicitly in budget managers performance appraisals and greater challenge of forecasts should be introduced for budget managers who consistently produce inaccurate forecasts during the year. 21 As at 31 March 2008 nearly 40 per cent of schools had excessive cumulative surpluses and 22 per cent had held an excessive cumulative surplus as defined by the Department for at least the last three years. The national total of cumulative net surpluses has increased by 250 million or 15 per cent in and only one in five local authorities have been successful in reducing their total cumulative net surplus. The Department should liaise with local authorities to determine the trend of cumulative school surpluses for Where excessive, uncommitted surpluses are continuing year on year the Department should encourage local authorities to make use of existing claw back powers to re-distribute funds to other local schools in line with priorities and needs. In the longer term the Department should also take into account the cumulative surplus position of each local authority and critically review the definition of an excessive cumulative surplus when it introduces a single more transparent formula for allocating Dedicated Schools Grant to local authorities from The Department should make use of relevant information contained in the audited accounts of local authorities and should introduce a pragmatic solution for obtaining relevant in-year information from local authorities to help exercise its strategic financial management role on a more timely basis. Financial Management in the department for children, schools and families 9

13 summary 22 There is little or no association between excessive cumulative surpluses and secondary school performance, whereas there is a correlation between secondary schools with cumulative deficits and lower performance. The ability of a school to accumulate a surplus as opposed to incurring a deficit is an important indicator that appears to be linked to the overall effectiveness of a school. The Department should investigate the reasons for any correlation between cumulative surpluses and deficits and Ofsted performance ratings in secondary schools and extend the analysis to primary and other schools. The percentage of schools with cumulative deficits has shown a downward trend over the last five years. Given the correlation between schools with cumulative deficits and lower performance, however, the Department should proactively work with local authorities to further reduce the number of schools with cumulative deficits. 23 There are two non-executive directors on the Departmental Board but the degree of external challenge of financial plans, policy and expenditure decisions at Board sub-committee level is limited. From 1 April 2009 the corporate governance structure has changed with the Board supported by a number of new sub-committees including a Finance Strategy Board with one member being a non-executive director, to examine financial matters in detail. The Department in completing its review of the corporate governance structure should have sufficient independent non-executive member representation to constructively challenge and scrutinise financial management decisions. 24 In some cases the assessment of financial implications in policy proposals is not sufficiently robust. The Department should strengthen the guidance on presenting financial implications contained in policy proposals and expenditure decisions and introduce a system for recording the clearance and submission of proposals. 25 There is a lack of clarity and understanding of the role of Financial Advice and Challenge Teams in the three policy directorates. The teams are not being used to their full potential, and have insufficient financial skills. The Department plans to raise the profile of Financial Advice and Challenge Teams, better define their roles, and formalise the existing network between them to allow sharing of best practice and secure consistency of advice. The Department should use its existing financial expertise to support non-departmental public body sponsor teams to enable them to provide relevant financial advice and support to non-departmental public bodies and to challenge proposals with risk or financial implications for the Department. The Department should also consider how to improve communication and information sharing across the non-departmental public body finance community. 26 Academies are directly accountable to the Department, but there is currently no reporting of their financial performance to Parliament. The Academies sector is growing at a significant rate, with the number of Academies planned to increase from 132 as at January 2009 to a final number of around 400. Local authorities do not have responsibility for Academies and if they encounter financial difficulties, the risk falls directly on the Department. As part of the Apprenticeships, Skills, Children and Learning Bill, the Department plans to move the funding of Academies to a new agency, the Young Person s Learning Agency. The Department s new agency should prepare an annual report for Parliament on the performance of the Academies sector, including an audited consolidated account for Academies. 10 Financial Management in the department for children, schools and families

14 Part One Organisation and accountability Introduction 1.1 The Department for Children, Schools and Families (the Department) is responsible for education and children s services for young people up to the age of 19 in England. It has six strategic objectives (Figure 1) intended to support the achievement of the Government s aims, set out in the green paper Every Child Matters (published in September 2003) that every child should receive the support he or she needs to be healthy, stay safe, enjoy and achieve, achieve economic well-being and make a positive contribution. Linked to these aims are 17 Public Service Agreements for which the Department has lead responsibility for five (Figure 1). The Children s Plan published in December 2007 sets out a broad strategy for improving services for children. 1.2 The Department was created from its predecessor department, the Department for Education and Skills in June 2007, with some functions transferring to the Department for Innovation, Universities and Skills. It is the first time that a single department has had responsibility for all children s services. It has direct responsibility for services such as children s education, but in other areas affecting children, such as health and poverty reduction, it has to work with and rely on other departments. 1.3 The Department develops policies in response to priorities set by Government. For the implementation of policies, however, it relies on a wide range of local and intermediary organisations such as maintained schools, Academies, children s centres and bodies responsible for support activities such as advice, training and standard setting. The Department seeks to influence the organisations on which it depends through a combination of grants, regulation and agreement on priorities and performance targets. Responsibility for further education, currently shared with the Department for Innovation, Universities and Skills, is set to change from with the planned wind-up of the Learning and Skills Council, and allocation of funding for year olds to local authorities through the Young People s Learning Agency which will report directly to the Department. 1.4 Against this background, this part of the report examines the Department s accountability and governance arrangements. Organisation 1.5 Geographic responsibility. The Department covers England. The education systems in Wales and Northern Ireland are broadly the same as in England, although are diverging in some areas. The education system in Scotland has been separate from the English system for many years and is substantially different. Box 1 overleaf describes the main differences in funding arrangements. 1.6 Staffing. In the Department employed 2,899 staff, a reduction of two per cent from The Department s nine executive non-departmental public bodies (including the Children s Workforce Development Council which became an executive non-departmental public body in April 2008) together employ nearly 3,500 staff. The Department, together with the Department for Innovation, Universities and Skills, met its target to reduce the total number of civil service full time equivalent posts by 1,465 by 2008 from the base-line number of 4,660 as at October 2003, a target set when the two Departments comprised the former Department for Education and Skills. 4 3 Department for Children, Schools and Families Resource Accounts Department for Children, Schools and Families Autumn Performance Report Financial Management in the department for children, schools and families 11

15 part one BOX 1 Main differences between the education finance systems of the home nations England Wales Northern Ireland Scotland All state maintained schools funded through local authorities, except Academies. The amount of school funding each local authority receives is determined by formula, (paragraph 2.7). School funding system essentially the same as that in England. The Welsh Assembly Government determines the overall level of education funding. Range of types of school is very different to England. State maintained schools are managed and funded in different ways and through different public bodies, mainly along religious lines. Central funding for education is not ring-fenced, unlike in England, and decisions on the allocation of funding to schools are made by local authorities. The Education and Lifelong Learning Directorate of the Scottish Executive does not produce separate accounts. It is difficult therefore to compare education spending directly with England. Source: National Audit Office 1.7 Estate. Although the sector as a whole comprises a very large number of assets, ownership is dispersed across many organisations. There are around 3,200 maintained secondary schools and around 17,400 primary schools, mostly owned by local authorities. As at December 2008 there were around 2,900 children s centres owned by local authorities, concentrated in areas of relative deprivation, and the Department plans to increase their number to 3,500 by 2010 to cover the whole of England. There were 132 Academies in January 2009, and the buildings are owned by the charitable trusts that manage them which must seek permission from the Department to dispose of the asset. The Department itself has a small asset base. It is based in three freehold properties in Sheffield, Runcorn and Darlington and in one leasehold building in London. The Department also owns the National College of School Leadership building in Nottingham and the European School in Abingdon. The combined value of the Department s estate was 49.9 million as at 31 March Accountability 1.8 Corporate governance structure. The Departmental Board, chaired by the Permanent Secretary (the Departmental Accounting Officer), David Bell, manages the Department. Its membership comprises the Director Generals of the Department s three policy directorates (Children and Families; Schools; and Young People) and Corporate Services Directorate, the Director of Communications, and two non-executive directors who provide external challenge and perspective. Since 2001 one of the two non-executives has been from a local authority background. The Audit and Risk Assurance Committee, chaired by a non-executive director, reports to the Departmental Board. Until 31 March 2009, the Departmental Board was supported by the Executive Management Board, which acted as a sub-board and had the same membership as the Departmental Board without the non-executive directors (Figure 2). The Department revised its corporate governance structure at the start of the financial year, replacing the Executive Management Board with six new sub-committees, including a Finance Strategy Board with one member being a non-executive. 1.9 Schools and other front-line providers. Non departmental public bodies operate at arms length from the Department and have their own boards with responsibility for financial management. Front-line providers of services for which the Department has overall oversight are typically accountable to local authorities, or in some cases non-departmental public bodies. For example, maintained schools are fully funded or part funded through local authorities and are run by either the governing body or the local authority. Academies are, however, accountable directly to the Department. Overall funding and accountability arrangements are complicated and not everywhere aligned, and as a result the Department is not able to influence the detail of how the funds are spent by schools and other front-line providers. Box 2 on page 14 summarises the accountability, audit and inspection arrangements for the Department s delivery partners. 12 Financial Management in the department for children, schools and families

16 part one 2 Departmental boards and committees The departmental Board comprises the Permanent Secretary (chair) and the three policy directorate Director Generals, the Director General of Corporate Services, the Director of Communications, and two non-executive directors. responsibilities 1 The Department s performance. 2 Taking forward the Department s strategic aims and objectives. 3 Managing resources. 4 Monitoring the achievement of performance objectives. 5 Maintaining a transparent system of prudent and effective controls. 6 Assessing and managing risk. 7 Leading and overseeing the Department s reform programme. 8 Taking forward key issues from the quarterly Corporate Performance Report. Activities It convenes monthly. Most Board actions relate to Departmental Strategic Objectives and the Corporate Performance Report. Executive Management Board comprises same membership as the Board without the two Non-Executive Directors. Chaired by the Permanent Secretary. Activities It convenes monthly, usually one week ahead of the Board meeting. It considers detailed issues, including some aspects of strategy, advising and deciding on the allocation of financial and human resources to achieve the Department s aims and objectives. Audit and risk Assurance committee comprises independent members and is chaired by a Non-Executive Director on the Board. Activities It reports to the Board on potential risks and reviews risk management. The Committee also reviews the Department s governance structure and internal controls. The Executive Management Board has been replaced by the following six new sub-committees from 1 April 2009: delivery Assurance and risk Board Finance Strategy Board culture Programme Board People Strategy Board Policy delivery Board Joint delivery Forum Source: Department for Children, Schools and Families Financial Management in the department for children, schools and families 13

17 part one box 2 Financial accountability, audit and inspection Organisation Financial accountability Audit Inspection Department for Children, Schools and Families Nondepartmental public bodies Academies Local authorities Schools Children s Centres Further Education Institutions Initial Teacher Training Providers Accountable to Parliament. Operate at arms length and accountable to Parliament. Accountable to the Department through a Funding Agreement. Academies are run by charities that prepare an annual report for the Charity Commission. Accountable to their elected members. Local authorities prepare an annual outturn statement regarding education. Accountable to local authorities. Accountable to local authorities. Accountable to the Learning and Skills Council. 2 Accountable to the Training and Development Agency for Schools. The National Audit Office certifies the Department s accounts and undertakes value-for-money studies of its activities. The Department has its own internal audit function. The National Audit Office certifies the accounts of non-departmental public bodies (except Partnerships for Schools) 1 and undertakes value-for-money studies of their activities. Internal audit services are provided by private sector audit firms. The Charities Act requires that Academies accounts are independently audited by private sector firms. Academies do not have internal audit functions. The Audit Commission is responsible for appointing the external auditors of local authorities. Local authorities either have their own internal audit functions or outsource to private sector firms. School expenditure is audited as part of the audit of the local authority accounts. Schools do not have internal audit functions but may be inspected by local authorities internal auditors. Expenditure is audited as part of the audit of the local authority s accounts. Children s Centres are not required to have internal audit functions. Further Education Institutions are responsible for appointing their own external auditors, and independently audited accounts must be provided to the Learning and Skills Council. Further Education Institutions are required to have internal audit functions by their Financial Memorandum with the Learning and Skills Council. Initial Teacher Training Providers are responsible for appointing their own auditors, and independently audited accounts must be provided to the Training and Development Agency for Schools. Initial Teacher Training Providers are not required to have internal audit functions. Not applicable. Not applicable. Inspected by Ofsted. Ofsted inspects the services provided by local authorities and their partners for children and young people. Inspected by Ofsted. Inspected by Ofsted. Inspected by Ofsted. Inspected by Ofsted. Source: National Audit Office NOTES 1 The C&AG became the auditor of the Department s four non-profit making companies (the Children s Workforce Development Council, National College for School Leadership, BECTA and the School Food Trust) from 1 April It is expected that the Learning and Skills Council will be dissolved by the Apprenticeships, Skills, Children and Learning Bill currently before Parliament. In the new Young People s Learning Agency for England will support and enable local authorities to provide education and training for year olds. 14 Financial Management in the department for children, schools and families

18 Part two Financial performance 2.1 This part of the report looks at the funding of the Department for Children, Schools and Families; how this money is utilised in keeping with the Department s key aims and objectives; and the Department s financial management of its running costs. 2.2 Funding for children, schools and families. In the Department s expenditure was 48.9 billion 5, of which 196 million was for its own running costs and 62 million for communications and research. The remaining 48.6 billion was allocated to the sector (Figure 3 overleaf). Excluding the Dedicated Schools Grant, which the Department became responsible for distributing from (previously schools funding had been included within the Revenue Support Grant paid to local authorities), the Department s total expenditure has increased at an average annual rate of 6.8 per cent in real terms between and (Figure 4 on page 17), with the Department s administration costs decreasing at an average annual rate of 1.9 per cent in real terms. Total expenditure including the Dedicated Schools Grant is forecast to increase in real terms at an average annual rate of 3.4 per cent between and and Departmental administration costs to decrease at an average annual rate of 4.8 per cent in real terms over the same period. 2.3 Revenue expenditure. The Department s revenue expenditure over the last four years has been close to budget with underspending ranging between one and four per cent. In the Department s total revenue budget was 44.7 billion (Figure 5 on page 17). This included: 36.6 billion for schools, of which 28.1 billion was Dedicated Schools Grant; 5.4 billion on services for young people; and 2.5 billion on services for children and families. How this funding is spent is examined in more detail later in this part. 5 Gross expenditure of 48.9 billion excludes expenditure relating to teachers pensions which is excluded from the scope of this report. Financial Management in the Department for Children, Schools and Families 15

19 part two 3 How funding for children, schools and families reaches those responsible for delivery central Government Intermediary bodies Organisations delivering front-line services department for Innovation, universities and Skills 6,987m 6,987m 47m Learning and Skills Council LSC spends 629m of DCSF funding directly including 533m on Education Maintenance Allowances 4,319m 47m 2,039m Further Education institutions, Independent Training Providers School sixth forms 47m department for communities and local Government 33,734m 3,657m 868m 471m 396m Local Authorities Local Authorities spend 1,020m of DCSF funding directly on services for children and families 32,383m 3,174m 1,107m 435m 140m Academies Schools Children s Centres 868m 240m Connexions Services 777m 0.5m Training and Development Agency 282m Initial Teacher Training Providers 152m 5m Qualifications and Curriculum Authority department for children, Schools and Families DCSF spends 265m directly on administration and activities to support all functions. 641m is spent directly on services to support schools and teachers, 296m on services for children and families and 88m on services for young people 1,170m 8.8m 106m 1m 83m 0.5m 37m 6m 0.3m 6.4m 1.3m 2.5m 0.2m CAFCASS (Children and Family Court Advisory and Support Service) National College for School Leadership BECTA (Government s lead agency for ICT in education) Partnerships for Schools School Food Trust 11 Million (The Children s Commissioner for England) Sources: Department s and NDPB s accounts NOTES Funding amounts relate to , revenue in dark blue, capital in grey. The Children s Workforce Development Council became a non-departmental public body on 1 April 2008 and is excluded from this figure. Partnerships for Schools (PfS) manages the Buildings Schools for the Future and Academies capital programmes but the funding currently goes directly from the Department to local authorities. This may change in the future as the Department s schools capital function is expected to transfer to PfS. 16 Financial Management in the Department for Children, Schools and Families

20 part two 4 Departmental actual and planned expenditure to , revenue and capital billion actual estimated/planned Financial Year Dedicated Schools Grant Young people (paragraph 2.12) Total, excluding Dedicated Schools Grant Children and families (paragraph 2.13) Schools, excluding Dedicated Schools Grant (paragaphs 2.6 to 2.11) Administration Costs Source: Department for Children, Schools and Families ( to actual expenditure and to estimated/planned expenditure from Departmental Report 2008; actual expenditure from Departmental Resource Account ) 5 The Department s revenue expenditure Children and Families 2.47bn Young People 5.42bn Schools 36.59bn Source: Department for Children, Schools and Families Financial Management in the Department for Children, Schools and Families 17

21 part two 2.4 Capital expenditure. In the Department s capital expenditure was 4.1 billion (Figure 6). The Department s main capital programmes are the Building Schools for the Future programme (Figure 7), which aims to renew the entire secondary school estate, the Academies programme (Figure 8) that is establishing new state funded independent schools managed by sponsors, and the Sure Start programme (Figure 9) that is establishing Children s Centres run by local authorities. 6 The Department s capital expenditure Children and Families 0.50bn Young People 0.05bn 2.5 The Department has built up a large year-end capital balance which it is able to carry forward to the following year. Some 888 million of the 1.3 billion balance brought forward from related to the Building Schools for the Future programme. A capital underspend in of 654 million increased the balance carried forward to 1.9 billion, representing a third of the Department s capital allocation for and rose to around 2.4 billion by 31 March The Department announced in March 2009 that 924 million of capital expenditure would be brought forward from to to support the Government s fiscal stimulus. Source: Department for Children, Schools and Families Schools 3.58bn 7 Building Schools for the Future Programme conventional (excluding Private Finance Initiative) capital expenditure Actual expenditure was below budget for the first two years of the programme. Expenditure is forecast to increase significantly over the three years from , and the Department expects it to exceed the original budget in the final two years and so utilise much of the carried-forward capital balance. billion Financial year Budget Actual spending Forecast spending Source: Department for Children, Schools and Families 18 Financial Management in the Department for Children, Schools and Families